Cabcharge shares have re-rated around the $4 mark in the wake of last week’s bombshell announcement from the Victorian government on how it will overhaul that state’s tax industry.

The company’s shares had been trading around the $5 mark when Victorian Premier
Denis Napthine
announced the changes. They then plunged more than 21 per cent to $3.85 – towards their record low of $3.71. They have since rebounded to the $4 mark.

The changes are limited to Victoria but there are so many of them – and it’s possible some will be replicated elsewhere – that analysts concede it’s difficult to work out what Cabcharge is now worth.

The biggest setback for the company is the Victorian government’s 5 per cent cap on fees for electronic payment; the current industry standard is 10 per cent. Processing payments contributed about 53 per cent of Cabcharge’s earnings before interest and tax in 2012. Other states including NSW and Queensland have confirmed they are looking at Victoria’s 5 per cent cap.

Another key reform is allowing taxis to operate without being a member of a network to which they must pay fees of about $7500 per annum. Cabcharge has dominant market shares in networks in NSW and Victoria, thus it has the most to lose from the new rules.

There are also reforms that will make taxi licences easier to come by, which could make the value of those licences fall. Cabcharge has $60 million worth of licences on its balance sheet (although it doesn’t disclose how many are in Victoria) – again it has much to lose from a fall in the value of licence fees.

Deutsche Bank has dropped its estimated 2014 earnings for Cabcharge by 11 per cent and put a 12-month price target of $3.50. JP Morgan has cut its price target from $4.58 to $4.

On the upside, many of these changes had been flagged and may have already factored into the share price. Cabcharge has also proven a resilient business despite several regulatory reviews. Fortunately for the company, there is nothing in the Victorian government reforms that appears to affect its monopoly hold over the company taxi accounts business.